SARS hurting Chinese market targeted by Adelson, Wynn

Monday, April 28, 2003 | 11:08 a.m.

The SARS virus is taking a whopping bite out of the tourism industry in the Chinese city of Macau, but the region's top gaming administrator and U.S.-based gaming analysts say the outbreak isn't a problem yet for Las Vegas companies building casinos there.

Tourism has been off by 20 percent to 30 percent in Macau this month, said Manuel Joaquin das Neves, director of Macau's Gaming Inspection and Coordination Bureau. Gaming analysts said because planned casinos by Wynn Resorts Ltd., and Las Vegas Sands Inc., are in the early stages of development, the oubreak hasn't resulted in any problems or delays for them.

Neves said today that visitation to Macau's 12 casinos has been off this month and a big Chinese holiday that usually brings thousands of gamblers to the city is likely to be a bust. The gaming resort city normally attracts just under 1 million visitors a month.

"Around the first of May, the Chinese usually observe seven days of holidays," Neves said by phone from Macau. "(Because of the SARS outbreak) this year, they are going to cut it to one day (to discourage travel)."

Neves said there have been no documented cases of SARS -- severe acute respiratory syndrome -- in Macau. Macau's Government Information Bureau says the region's health bureau has begun using high-tech devices to scan body temperatures of arriving tourists in an effort to prevent the disease from entering the area.

On Friday, the health bureau began using portable infrared thermometers at three checkpoints to scan the temperatures of arriving visitors. In the first day of operations, the bureau scanned about 18,000 people at a harbor ferry terminal, the airport and a border checkpoint, making 11 inquiries and sending one person to a hospital for consultation.

The infrared thermometers can detect a person's body temperature from about 4 inches away. One SARS symptom is a high body temperature.

The Government Information Bureau also said it has introduced new screening procedures and set up isolation units at Macau's major hospital to prevent an outbreak.

Neves said that because Macau gets most of its gamblers from Hong Kong -- an area hard hit by the SARS outbreak -- he expects tourism to be down for some time. But that shouldn't hurt the two Las Vegas companies building casinos in Macau, he said, and gaming analysts following those companies concur.

Analysts who follow Wynn Resorts Ltd. and Las Vegas Sands Inc. say those firms' respective casino construction projects shouldn't be affected by the recent outbreak in Asia. But, they added, if the disease is still a concern at the end of the year, there could be reason for alarm.

"It would be a bigger issue if they were up and running," said John Maxwell of BNP Paribas, New York, who follows Wynn Resorts and Las Vegas Sands, which both have licenses to build casinos in Macau. "Hopefully, the virus will be better identified and vaccines developed to combat it within a few months."

Andrew Zarnett, a gaming analyst for Deutsche Bank, New York, added "the (construction) timetable doesn't even count until later in the year."

Maxwell said a bigger issue for Las Vegas may be the effect the virus could have on future trips by Asians to Las Vegas.

"MGM (MIRAGE) said in their earnings conference call that they haven't seen any big cancellations yet as a result of SARS," Maxwell said. "But as far as the Las Vegas companies working in Macau, there shouldn't be any impact on construction because they're using local labor. The long-term plan is to market Las Vegas through those properties in Macau, but that's still some time off."

Representatives for Wynn Resorts and for Las Vegas Sands, owner of The Venetian, had no comment on whether the outbreak of SARS has affected their plans in Macau.

Wynn Resorts plans to break ground on a casino in Macau in the second or third quarter of this year, according to Securities and Exchange Commission filings. Neves confirmed that the company is in the process of getting construction permits.

Venetian spokesman Kurt Ouchida said the SARS outbreak would be addressed in the company's conference call to discuss first-quarter earnings Tuesday.

In a related matter, The Venetian announced the promotion of Thomas Smock to senior vice president and general counsel and said he would oversee all phases of in-house counsel duties for the company's operation in Macau. Smock joined The Venetian in May 2000 and advised senior executives and upper management on day-to-day business law matters.

Macau is 37 miles southwest of Hong Kong, one of the cities most severely affected by the outbreak of SARS.

The former Portuguese colony, transferred to Chinese administration in 1999, has been a gaming destination on the South China Sea for 40 years and in 2001 attracted 10 million tourists. The Macau Statistics and Census Service said Macau generated $2.3 billion (U.S) in gaming revenue in 2001.

The government estimates that more than half of Macau's tourists come from Hong Kong and 90 percent of visitors are from Hong Kong, mainland China and Taiwan, with other visitors arriving steadily from South Korea and Japan.

Tourism is expected to pick up even more in 2005 when a new Hong Kong Disneyland is due to open on Lantau Island near Macau.

Macau International Airport has nonstop air service to and from Manila, Singapore, Taipei, Bangkok, Beijing, Shanghai and 14 other cities, most of them on China's mainland.

Macau also has direct hydrofoil, ferry and helicopter service from Hong Kong and Kowloon.

According to documents filed with the SEC, Venetian owner Sheldon Adelson already has spent $4.7 million on predevelopment expenses in Macau.

A recent SEC filing by Wynn Resorts said the company plans to invest $515.6 in Macau by 2009. Wynn Resorts already has invested $23.8 million in its Wynn Macau subsidiary and has entered a $574,000 preconstruction services agreement with an unidentified third party.

Wynn Resorts Chief Executive Steve Wynn and Adelson have said the 1.3 billion population base of China and the fact that 60 million people live within a two-hour trip of Macau were reason enough to pursue a license to compete in that market, which has 12 casinos, seven in hotels. For 40 years, those casinos have operated under a government-sanctioned monopoly controlled by Chinese gaming entrepreneur Stanley Ho.

Wynn and Adelson each contemplate having more than one casino in Macau. Wynn is planning to build a property in phases. In its SEC filing, the company said the first phase would include a casino, retail space and a multipurpose entertainment center.

The filing said the first phase could open as early as 2004 and the second phase, which would include 650 hotel rooms and additional food and beverage outlets, would begin construction six to nine months after the first phase opens.

The Wynn project would be near the Hotel Lisboa, one of Macau's largest hotels.

Adelson also plans more than one casino, building a small operation to be followed by a hotel, casino and convention center resembling The Venetian in Las Vegas.

Las Vegas Sands, affiliated with Galaxy Casino Co. Ltd., which is backed by a group of Hong Kong investors led by Lui Chi-loo, plans to build on Taipa, the island that houses Macau International Airport. The property would be near the Mandarin Oriental, another of the largest hotels in Macau.

Both Wynn and Adelson have planned their Macau properties with an eye toward inviting their top Chinese gamblers to Las Vegas, Wynn to his $2.4 billion Le Reve hotel-casino under construction on the Strip, and Adelson to the Venetian, which is undergoing a $140 million room expansion.

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